Even if Portland Real Estate Prices Stay the Same, It Could Costs More to Wait.

I see many Portland real estate buyers are standing on the sidelines waiting for home prices to hit rock bottom. They are afraid of getting in the game thinking that the prices will be lower next month. They want to guarantee that they are purchasing at the best possible price. The data shows that prices might still have some room to fall for some Portland homes for sale. So, how could waiting for the lowest Portland real estate price be a bad financial decision? While buyers should concerned about housing prices, they should also concerned about cost. The cost of a home is made up of the price AND THE INTEREST RATE they will be paying.

The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:

The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.

INTEREST RATES

The Primary Mortgage Market Survey released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:

“Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week. As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”

So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a West Linn home this year? The price is the same. It just costs more.

Let’s take a look at an example:

If you were to buy Portland real estate now at $300,000 with 4.75% interest rate, you could be paying $2042.40 per month. We are assuming that this buyer has an FHA loan for $292,395.

Now if the same home was on the market later with a $10,000 price drop ($290,000) but the buyer is now paying a higher (5.75%) interest rates, the new payment could be $2159.35 based on the FHA loan amount of $282,649.

In this example, buying now would one would have a to put down $350 more cash to close, but would be saving$116 per month, more than making up for the cash out of pocket by the 3rd month of payments. Taking another step out, over 5 years that is over $11,000!!!

Even if prices fall a this year, the cost of a home will increase if interest rates continue to go up. Buyers should not only worry where prices are going, they should also be concerned where costs (price + interest rates) will be.

As for finding that elusive bottom of the Portland real estate market, only by looking at recent sold numbers can we tell when we passed it. In other words, we will not know when it was until we are on the other side, looking back.